MTR Gaming Pulls Issue as ‘American Idol,’ Cumulus Deals Stall

Demand for high-yield, high-risk debt is plunging to the lowest level in more than a year as concern mounts that fiscal crises in Europe and the U.S. will derail credit markets, forcing companies to pull offerings or pay higher interest rates.

MTR Gaming Group Inc. (MNTG) pulled a $500 million eight-year note offering because of “market conditions,” the Chester, West Virginia-based casino operator said yesterday in a regulatory filing. Cumulus Media Inc. (CMLS) was forced to sweeten terms of a loan backing an acquisition and CKX Inc. (CKXE), owner of “American Idol,” left Goldman Sachs Group Inc. and Macquarie Group Ltd. holding a bridge loan after pulling a bond sale last month.

“What we’ve seen in the past six weeks is that you can’t just throw yield on it,” Greg Margolies, a senior partner and head of the capital markets group at Ares Management LLC, which has more than $40 billion under management. “It doesn’t get done. People are focused on credit again, the underlying health of the company, the structure of the deal.”

Investor confidence has been rattled after Moody’s Investors Service cut Ireland’s debt ranking to junk on July 13 and government bond yields soared in Italy and Spain. The rating company placed the Aaa credit grade of the U.S. under review for downgrade on July 13 as an Aug. 2 deadline for raising the U.S. debt ceiling approaches. The unemployment rate in the world’s largest economy rose to 9.2 percent last month, the highest level this year.

That’s helped push down high-yield bond sales in the U.S. this month to $5.6 billion after $16.7 billion of issuance in June, the least in twelve months, according to data compiled by Bloomberg. That followed a record $163 billion of speculative- grade bond sales in the first five months of 2011.

‘Rising Tide’

Relative yields on the debt, ranked below Baa3 by Moody’s and less than BBB- by Standard & Poor’s, gained 10 basis points to 549 basis points since July 8, according to Bank of America Merrill Lynch index data. A basis point is 0.01 percentage point.

“You’re no longer in a marketplace where a rising tide lifts all boats,” said Bonnie Baha, who manages corporate credit in DoubleLine Capital LP’s Core Fixed Income Fund, which has performed better than 99 percent of its peers in the past year, according to Bloomberg data. “In this environment, we’re not willing to go out on a limb and take a lot of risk for a few extra basis points. It’s just not worth it.”

Financing Alternatives

MTR will “continue to evaluate its financing alternatives,” according to the filing. The terms proposed by the market were unacceptable to the issuer, according to a person familiar with the offering who declined to be identified because they weren’t authorized to discuss the transaction publicly.

The proceeds were slated to fund a tender for its 9 percent notes due 2012 and 12.625 percent notes due 2014, it said in a July 7 press release.

“The pricing in terms of what issuers are seeing in the market compared to a month and a half ago has changed,” Michael Halchak, a credit analyst with S&P in New York, said in a telephone interview. “They will need to refinance. That’s a clear issue. It’s just when they do.”

The company, which operates a racetrack and gaming resort in West Virginia and a casino in Nevada, is rated B- at S&P and B3 by Moody’s.

Its $260 million of 12.625 percent notes have fallen to 105.75 cents on the dollar as of July 13, from 107.25 in April, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

John Bittner, chief financial officer, didn’t respond to calls seeking comment.

Wishing on a Star

While July and August are traditionally slower than the rest of the year, the market is unlikely to resume its record pace, according to Baha.

“If you pull a deal waiting for a sunnier day down the road, you may or may not get that,” she said in a telephone interview. “We’ve been in an extraordinary environment for issuers for the past 12 months. To expect that to continue is probably wishing on a star.”

Cumulus, the Atlanta-based broadcaster, yesterday changed the terms of $2.04 billion in loans it’s seeking to back the acquisition of Citadel Broadcasting Corp. after lenders pushed back against the original terms.

JPMorgan Chase & Co. (JPM), arranging the transaction, had to rework financing after leveraged loan prices fell in June by the most since May 2010. They declined 0.05 cent to 94.75 cents on the dollar since July 8.

Apollo Global Management LLC’s CKX postponed a $360 million bond offering to repay bridge financing as credit markets weakened last month. New York-based CKX, taken private by Leon Black’s Apollo for $509 million in June, failed to sell senior secured eight-year notes in the week ended June 25.

“It is healthy when we see the market push back a bit,” Margolies of Los Angeles-based Ares said. “We like to see the discipline, we like to see the banks exercising more underwriting discipline.”

To contact the reporter on this story: Mary Childs in New York at

To contact the editor responsible for this story: Alan Goldstein at

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